The Wells Fargo bank is an American financial institutions and it offers its services across the universe. The bank is rated the fourth biggest in the United States in terms of assets and is considered the largest bank in a capitalization aspect. It offers services of home mortgage, debit cards and bank deposits and it’s rated the 2nd largest in this perspective. The bank has its headquarters at San Francisco in California. In the countries where the bank offers its services, it has also major hub-quarters that are t6he centers to control its operations in the country. In the year, 2007, the bank was placed AAA by S$P though it dropped to AA because of financial constraints in 2007-2012.
Through acquiring of San-Francisco based wells Fargo and the Minneapolis-based Norwest Corporation in 1998 and 2008 respectively, there came into existence of the wells Fargo bank. After Norwest was acquired, it was the only entity that was still operating during the merger in 1998. After this, it changed its name to Wells Fargo and was considered a new corporation. The history of Norwest was very useful because it had a 150 years history therefore it was well recognized because of the national trademark that it had.
1.1 Expansion of the Fargo bank
Tevis’ management helped the Fargo bank to expand its banking offices from 436 to 1872 branches. Through the process, the bank introduced a transcontinental express line that was to be made a success by use of the railroads. The Wells Fargo bank expanded its services to various countries in the universe including `Japan, Australia, Hong Kong, South America, Europe and Mexico. The state where the Fargo bank operates includes California, Illinois, Florida, Nevada, Philadelphia, Minnesota, Pennsylvania, Arizona, Texas, Colorado, Mississippi and Ohio amongst others.
2.0 The TARP program, 2008.
The TARP program was initiated by the U.S. Department of Treasury during 2008 and it was committed to purchasing equity and assets from many financial organizations so that it could effectively participate in the financial sector. The major activities that are linked TARP include: the auto industry, the bank investments programs, the credit market programs, housing, investment in AIG and executive compensation. The government initiated the program so that it could deal with the subprime mortgage crisis.
The program led to the authorization of expenditures estimated to be of worth 700 billion dollars. By 2012, the CBO gave a proposal for the TARP program to reduce its disbursements to 431 billion dollars. The congressional budget office highlighted the mortgage grants that had not been estimated in the costs.
2.1 Purpose of the TARP program
The purpose of TARP is to ensure the treasury department of the United States insures troubled assets of more than 700 billion dollars (Oscar, 2012). It ensures that it determines the purchase of assets and cultivate towards a successful financial market to ensure its stability. In other term, it can be said that it gives treasury the upper hand to purchase the illiquid assets that makes it hard to give to value bank assets. The TARP has a purpose to ensure that it improves the assets liquidity through the purchase of secondary market mechanisms so that institutions can be able to make stable their balance sheets and prevent all forms of losses that are experienced.
On February, 2009, the treasury decided to fund TARP with 300 billion dollars where they directed 50 billion dollars to finance the private investors so that they could be in a position to purchase the toxic assets from banks. This made it possible for the TARP program to assist the Fargo bank with the funds to but the liquefied assets. TARP ensured that that the Wells Fargo bank was able to participate in stock investments through funding from the treasury.
3.0 The stress test for the Fargo bank conducted by the Federal Reserve System
The Federal Reserve System performed both the Dodd-Frank Act Stress test and also the annual stress test. The two tests were a requirement s to be complied under the guide of the office of the comptroller of the currency. It was realized that the bank accounts held up to 90% of the overall assets of the Wells Fargo company. The test results showed that the global market shock components were all the same with the financial results that were present in the company and this included the credit loss accounts, the balance sheet changes, and the net revenues pre-provision (Stout2003). When the results of the capital ratios were released, it could be said that they never needed the standardized capital actions. The results of the capital actions that were stated in the wells Fargo pro-forma indicated that the bank management authority was required to preserve capital in time of the harsh economic conditions.
3.1 Wells Fargo Bank, N.A capital results
- The capital projections after quarter 4 in 2012 included the market-risk capital rules came into effect on 1st January 2013.
- The risk-based capital ratios are a representative to the requirements per minimum capital ratios
- The tier 1 common equity is considered a non-GAAP financial measure and its useful to investors, financial analysts, and the agencies in banks in assessing the capital position of the financial services companies.
The tier 1 leverage ratio is the tier 1 capital ratio decreases slightly compared to the test horizon. The decrease arises due to the assumption of growth in the average consolidated assets that takes the pace of growth realized in the Tier 1 capital.
The pre-provision net revenue consists of projections realized in the net interest income, non-interest expense and non-interest income. Every component is unique and exposed to various risks which include the interest rate risk, market risk, operational risk, mortgage repurchase risk, and liquidity risk. The risks help to generate the stress projections that are given in each test horizon. When the stress results are evaluated, the analysts must put into considerations the uncertainties and the limitations of the given estimates.
4.0 Computations
ROA (Returns on assets)
ROA =annual net income/average total assets
=0.000014
ROE (return on equity)
ROE= net income after tax/shareholders’ equity
=0.000120
NET PROFIT MARGIN
Net profit margin= net income/sales revenue
=0.21
DEBT RATIO
Debt ratio= total liabilities/ total assets
=0.88
Equity multiplier
Equity Multiplier = Total Assets / Stockholder's Equity
=9.14
4.1 The analysis of the computation
The ROE financial ratio is utilized by the investors in the process of analyzing the stocks. The ROE value shows that the management team of the Wells Fargo bank did not lead to full conversion of the re-invested funds to realizable profits. The ROE that is calculated is not a higher value therefore it indicates that the Wells Fargo bank is not in a position to generate enough of the amount spent.
Return on Equity value estimates the return rates founded in the ownership interest from the owners common stock. It is also used to indicate the effectiveness of the company in profit generation in each of the unit that is found in the shareholders equity. The ROE value indicated that generating profits required outsourcing of other sources.
The net profit margin value was used to estimate the amount earned by the Wells Fargo bank and it indicated that profits could be realized by investors. The net profit margin is low therefore this means that the company is experiencing a low safety margin. This value indicated that the Wells Fargo bank was able to control all of its costs but it was not fully effective in conversion of revenue to realizable profits.
The debt ratio of the wells Fargo bank is 0.8. This is a higher value and its interprets that most of the assets of the bank are in the hands of most creditors. This indicates that the bank is in a high risk in its operational activities because the bank is fixed in a difficult position to obtain loans for any new projects introduced. Therefore, it can be concluded that many assets of the wells Fargo bank were financed by means of debts.
The equity multiplier of the wells Fargo Company is 9.14. This is a lower ratio and it means that the financial leverage of the company will be higher. Therefore, the debtors own more of the company assets placing the bank business in a risk to operate at a loss. The wells Fargo bank is therefore at a risk at becoming bankrupt and it cannot settle its debt easily.
5.0 The ethical standards of the Fargo bank
In the ethical standards, the well Fargo bank ensures that it protects the following: private, personal, and confidential information of their customers and all involved stakeholders. The confidential information should not be disclosed to any unauthorized persons without their consent. The disclosure is only made also when the policies and regulations governing information allow the disclosure. The wells Fargo has privacy policies that protects all agreements that they have entered into with their customers.
The company has additional policies that are used by other applicable business units that will restrict information flow between various units involved. Any instances of illegal disclosure of confidential information by the wells Fargo company can lead to damage of the trust of the customers and massive loses in the business. Every individual is entitled to ensure effective implementation of the regulations knowing that its violation is not in accordance with the policies and ethical codes of the wells Fargo bank.
5.1 Compliance with the ethical standards
The wells Fargo bank have a duty to ensure that it complies with the federal laws and regulations under all jurisdictions of its operation (Peter, 2012). The laws and regulations that the bank must be in compliance with include security regulations, accounting controls, audit controls and accounting standards. All members of the bank must have knowledge about their roles and duties and ensure that it complies with the policies and procedures of the company. In situations where interpreting the policies and regulations of wells Fargo looks complex, an individual is expected to consult any supervisory manager for assistance.
6.0 Appendix
6.1 Income statement
6.2 Balance sheet
Assets
References
Suris, Oscar.(2012). "Wells Fargo Announces Settlement with U.S. Department of Justice Regarding Mortgages". Wells Fargo Bank. Retrieved 2012-07-13.
Schroeder, Peter (August 14, 2012). "Wells Fargo to pay $6.5 million to settle SEC charges". The Hill. "On The Money" blog. Retrieved August 15, 2012.
Raice, Shayndi (October 10, 2012). "U.S. Sues Wells Fargo for Faulty Mortgages". Wall Street Journal Online. Retrieved October 10, 2012.
Sorensen, Donald J. (August 19, 1980). "Firm, banks to change name". The Oregonian, p. A10.
Heidi Stout (July 3, 2003). "Wells Fargo Center nabs KPMG for top floors". Portland Business Journal. Retrieved 21 September 2010
